Defense of WorldCom's Ebbers Begins with Whistleblower

Lawyers for former WorldCom Inc. Chief Executive Bernard Ebbers launched their defense Wednesday afternoon with testimony from the whistleblower credited with alerting WorldCom's board to the massive accounting fraud.

Cynthia Cooper, the former head of internal auditing at WorldCom, testified that auditors at Arthur Andersen gave a "green light" rating to the company's accounting for 2000 and 2001, the Associated Press reported. She also said that WorldCom's ex-finance chief Scott Sullivan did not mention "anything uncomfortable" about company accounting at a 2001 audit committee meeting.

In 2002, Cooper told the WorldCom board of directors about irregular accounting practices that resulted in an $11 billion accounting fraud and the largest bankruptcy in U.S. history.

Cooper testified after federal prosecutors rested their conspiracy and securities fraud case against Ebbers, with the question of what he knew about accounting misdeeds at the company in the balance.

The star witness in the case was Sullivan, who testified that he told Ebbers about bloated revenue and hidden expenses at the company in 2001 and 2002. He also said he told him that falsifying the books was the only way to meet Wall Street expectations, according to the AP. He said Ebbers told him repeatedly, “We have to hit our numbers,” a phrase Sullivan said he interpreted as an order to commit fraud.

Ebbers has not testified in his own defense, but his attorneys say that the fraud was Sullivan's brainchild and that Ebbers was unaware of it.

Ebbers is charged with securities fraud, conspiracy and seven counts of filing false statements with the Securities and Exchange Commission. Sullivan has pleaded guilty to fraud and is seeking leniency at his sentencing.

Another former employee who testified against Ebbers was ex-controller David Myers, who said accountants were told to make improper entries in the company's books. Ebbers told him in 2002 that he was “sorry you were asked to do what you were asked to do,” Myers said.

The prosecution, in an effort to show that Ebbers had his own finances in mind when leading the company, called as a witness former investor relations chief Scott Hamilton. He said Ebbers talked about the drop in the company's share price in late 2000 and said “he is going to be financially wiped out.”

Testimony also included statements by a former Bank of America account manager who said Ebbers took out $400 million in personal loans, which were backed by WorldCom stock.